Yahoo: The Media Titan That Wasn't

Yahoo CEO Marissa Mayer walks off the stage after delivering the keynote address Thursday, Feb. 18, 2016, at the Yahoo Mobile
Yahoo CEO Marissa Mayer walks off the stage after delivering the keynote address Thursday, Feb. 18, 2016, at the Yahoo Mobile Developer Conference in San Francisco. (AP Photo/Eric Risberg)

I don't envy Marissa Mayer. Yahoo's CEO has struggled to turn the tech company around in recent years. Now she faces pressure from activist investors who want her to engage in "strategic alternatives" -- boardroom speak for a sale of Yahoo's core business.

There's no single reason for Yahoo's decline, but if there had to be one, it would be the company's inability to anticipate smartphones. Yahoo cut its teeth making popular desktop web properties like Yahoo Finance, Yahoo News, and more recently Yahoo Fantasy. By the time Mayer joined Yahoo in July 2012, the ship had already sailed on mobile. Mayer tried to stem the tide of change with a string of acquisitions, notably Tumblr in 2013, but none of them propelled the company's growth.

It's not difficult to see why Yahoo's investors are getting anxious. Its stock has sunk over 30% in the last year, and its valuation is being propped up by stakes in e-commerce giant Alibaba, and Yahoo Japan. Since the IRS ruled out a tax-free Alibaba spinoff last year, shareholders have insisted Mayer meet with potential suitors for its core businesses. That's too bad, because Yahoo might have made a fantastic digital media company.

In the world of search engines, for example, Yahoo isn't doing so hot. It claimed about 12% of search market share in January 2016, compared to Google's 64%. What Yahoo does have, however, is a massive online audience.

How large, you ask? Its web and mobile properties have an aggregate 205 million monthly unique visitors -- more than BuzzFeed and The Washington Post's websites combined. And while BuzzFeed has recently questioned the usefulness of unique visitors as a measure of overall reach, let's assume a content-centric Yahoo would be able to grow video and direct-to-platform audiences on top of its existing websites and apps.

Sustainable media companies are at least one thing Yahoo is not: lean. Buzzfeed has roughly 1,300 employees creating content for 80.4 million unique visitors. That's about 62,000 visitors per employee. Yahoo, on the other hand will have roughly 9,000 employees when it completes its latest round of layoffs -- about 23,000 visitors per employee. If the company shed some of its less popular products it could probably enjoy a healthy, if not explosive, ad business.

A transformation like the one I'm describing would be dramatic, and probably difficult to pull off. It would also come with caveats. Even though a slimmed-down Yahoo could be a viable media company, plenty of its users are attracted by consumer products like Yahoo Mail or Flickr. It's not clear they would return to a media-centric Yahoo. If it were to pivot, Yahoo should evaluate its properties to see what's driving traffic and what isn't. The company's traffic acquisition costs -- money it spends to attract visitors -- were up over 300% year over year in the quarter that ended last December.

It's too soon to know what will happen to Yahoo. It could easily spin off some of its businesses and still retain its foundation in tech. Yahoo's downsizing plans include a haircut for the editorial staff, so it's unlikely to make the pivot content in the near future. But while some see a company that's more valuable in pieces than as a whole, I see a media portfolio in a tech company's shoes.